Reading our Financial Report
The Financial Statements are prepared by Glen Eira City Council staff to meet requirements of the Local Government Act 1989 and Australian Accounting Standards. In addition, the Department of Environment, Land, Water and Planning’s model accounts are used to assist with standardised financial reporting for Local Government organisations in Victoria.
Council’s Financial Report contains two statements — the Financial Statements and the Performance Statement.
The Financial Statements and Performance Statement are audited by the Victorian Auditor-General’s Office (VAGO) and are reviewed by Council’s Audit Committee, which recommends adoption by Council in principle.
The reports are then forwarded to the Auditor-General’s office for provision of independent opinions on the Financial Report and Performance Statement.
Once approval has been obtained from the Auditor-General’s office, the annual reports are made available to the public.
Glen Eira City Council is committed to accountability. This section has been developed to assist readers to understand and analyse the Financial Report.
Council’s Financial Report has two main sections — the Financial Statements and the accompanying explanatory notes. The Financial Statements comprise the five main statements, namely:
- Comprehensive Income Statement
- Balance Sheet
- Statement of Changes in Equity
- Statement of Cash Flows
- Statement of Capital Works
Each statement assists in the overall understanding of Council’s financial position.
Comprehensive Income Statement
This Statement outlines all sources of Council’s income for the financial year under various headings such as general rates and garbage charges; and all expenses incurred in the day-to-day running of Council over the financial year. These expenses relate to the daily operation and do not include capital expenditure, however the depreciation and amortisation of assets are included. Expenses include items such as labour costs, materials and supplies, utility and insurance costs.
The Statement is prepared on an ‘accrual’ basis. This means that all income and expenses for the financial year are recognised even though the income may not have yet been received (eg. interest on investments) or that expenditure has not yet been paid (invoices received, but not yet paid for materials and services that have already been used).
The key figure in this Statement is the result for the reporting period, which is the best measure of Council’s financial performance. This figure is determined by deducting total expenses from total income. The figure indicates whether Council operated at a surplus or a deficit (a figure inside brackets reflects a deficit).
Other comprehensive income comprises items of income and expense (including reclassification adjustments) that are not recognised in the surplus or deficit as required or permitted by other Australian Accounting Standards. The components of other comprehensive income include changes in revaluation reserve.
The Balance Sheet is a snapshot of Council’s financial position as at 30 June. It outlines what Council owns (assets) and what it owes (liabilities). Council’s net worth (net assets or equity) is determined by deducting total liabilities from total assets — the larger the net equity, the stronger the financial position. Council’s financial position at 30 June 2018 is sound, reflecting our commitment to financial and infrastructure sustainability.
The elements of the Balance Sheet are listed below:
Current and non-current assets
A current asset is expected to be used within a financial year, or can be easily converted to cash within 12 months. This includes items such as cash held, investments and money owed to Council by debtors. Net current assets are more commonly known as working capital. The figure is calculated by deducting current liabilities from current assets to ascertain whether Council can meet its short-term commitments. A non-current asset is not expected to be used or turned into cash within an operating cycle. Non-current assets include items such as roads, drains, buildings, artwork, furniture, fixtures and fittings, vehicles and equipment.
Current and non-current liabilities
- Trade and other payables are those to whom Council owes money.
- Provisions are made for employee benefits and include annual leave, long service leave and sick leave. Provision has also been made for environmental rehabilitation of the Clayton Regional Landfill.
- Trust monies are those funds that Council holds in trust.
- Interest-bearing liabilities which include borrowings and leases.
This term describes the difference between the value of total assets and the value of total liabilities.
The value of total equity is equivalent to the value of net assets and comprises the following:
- Asset revaluation reserve, which is the difference between the previously recorded value of Council’s assets and their latest valuations.
- Transfers from the asset replacement reserve during the financial year reflecting the funding of eligible open space capital works projects.
- Accumulated surplus is the value of surpluses/profits accumulated over time.
Statement of Changes in Equity
The Statement of Changes in Equity summarises the change in Council’s real worth throughout the financial year. It shows the changes that have happened during the year for each of the amounts shown under the net assets section of the Balance Sheet. Council’s net worth can change as a result of a surplus or deficit as recorded in the Comprehensive Income Statement; or an increase in the net value of non-current assets resulting from a revaluation of those assets.
Statement of Cash Flows
The Statement of Cash Flows shows all the cash received and paid during the financial year. Figures without brackets are inflows (receipts) and figures inside brackets are outflows (payments). This Statement shows how much cash Council had at the beginning of the financial year, the inflows and outflows during the financial year and the cash balance at the end of the financial year.
Cash is generated or used in three main areas of activity of Council:
(i) Cash flows from operating activities
These activities refer to the cash generated or used in the normal service delivery functions of Council. They also include receipts of monies held in trust.
(ii) Cash flows from investing activities
These activities refer to the cash used or generated in the enhancement or creation of infrastructure and other assets. These activities also include the acquisition and sale of other assets such as vehicles, property, equipment etc.
(iii) Cash flows from financing activities
These activities refer to cash used or generated in the financing of Council functions and include borrowings from financial institutions and advancing of repayable loans to other organisations. These activities also include repayment of borrowings and leases.
Statement of Capital Works
The Statement of Capital Works sets out all the capital expenditure in relation to non-current assets for the year. It also shows the amount of capital works expenditure that was spent on expanding, renewing or upgrading Council’s asset base. This is important because each of these categories has a different impact on Council’s future costs. A distinction is made between expenditure on new assets, asset renewal, upgrade and expansion as follows:
(a) Asset renewal expenditure — expenditure on an existing asset that returns the service potential or the life of the asset up to which it had originally. It is periodically required expenditure, relatively large (material) in value compared with the value of the components or sub-components of the asset being renewed. As it reinstates existing service potential it has no impact on revenue, but may reduce future operating and maintenance expenditure if completed at the optimum time.
(b) Asset upgrade expenditure — expenditure that enhances an existing asset to provide a higher level of service or expenditure that will increase the life of the asset beyond that which it had originally. Upgrade expenditure is discretional and often does not result in additional revenue unless direct user charges apply. It will increase operating and maintenance expenditure in the future because of the increase in Council’s asset base.
(c) Asset expansion expenditure — expenditure that extends an existing asset at the same standard as is currently enjoyed by residents, to a new group of users. It is discretionary expenditure which increases future operating and maintenance costs because it increases Council’s asset base, but may be associated with additional revenue from the new user group.
(d) Asset new expenditure — this results in the creation/acquisition of a new asset.
Notes to the Financial Report
The notes to the Financial Report give greater meaning to the figures used in the four main statements. They should be read in conjunction with the statements to get a clearer picture of Council’s finances. The notes give the details behind the summary line items contained in the statements, showing exactly what each of the accumulated amounts are made up of.
The notes also provide information on the rules and assumptions used to prepare the Financial Statements, advise the reader about any changes to the Australian Accounting Standards, policy or legislation that may affect the way the statements are prepared and disclose other information which cannot be incorporated into the statements.
Notes are particularly useful where there has been a significant change from the previous year’s comparative figure.
Other notes include:
— the breakdown of expenses, revenues, reserves and other assets;
— contingent assets and liabilities; and
— transactions with persons related to Council.
Council is required to prepare and include a Performance Statement within its Annual Report. The Performance Statement includes the results of the prescribed sustainable capacity, service performance and financial performance indicators and measures together with a description of the municipal district and an explanation of material variations in the results. This Statement has been prepared to meet the requirements of the Local Government Act 1989 and Local Government (Planning and Reporting) Regulations 2014.
Each of the statements are certified by two Councillors, with the Financial Report and Performance Statement also being certified by Council’s Chief Executive Officer and Principal Accounting Officer — or in Glen Eira City Council’s case, the Chief Financial Officer. Two Councillors and the Chief Executive Officer must make certifications stating that in their opinion the relevant statements are fair, correct and not misleading. The Principal Accounting Officer, being the person responsible for the financial management of Council, must make a separate certification stating whether, in their opinion, the statements have met all the statutory and professional reporting requirements.
The Auditor-General’s audit reports provide an external and independent opinion on the Financial Report and Performance Statement. They cover both the statutory and professional requirements and also the fairness aspects of the statements. They will also advise separately if there are any issues of concern. In this Annual Report, the Auditor-General has prepared an audit report for the Financial Report and a separate audit report for the Performance Statement.